Behavior Of Real Wages Research Articles

Business cycles and trends in Germany and Portugal: macroeconomic policy implications in the Euro Area

ABSTRACT We describe the neoclassical view of the business cycle by European Institutions in the Euro Area, and derive the stylized facts of business cycles and trends for Germany and Portugal in the period 1991–2018. The data are extracted from the European Commission’s AMECO database. To separate cycle and trend, we use the decomposition available in the AMECO database for the output, and the Hodrick-Prescott filter for the other variables. The results show that the amplitude of the business cycle and persistence of shocks are greater in Portugal than in Germany. They also show that the stylized facts of the business cycles of the two economies are quite different. Moreover, common shocks have asymmetric consequences. In the long run, there has been a convergence of inflation, general government structural balances, and real unit labour costs, but general government consolidated gross debt, fixed investment, and per capita potential GDP have been increasingly diverging, despite the behaviour of real wages and net exports in the two countries. Additionally, temporary shocks have permanent effects on the Portuguese economy. The results raise questions about the place-neutral macroeconomic policy enforced by the European institutions in the Euro Area, particularly in what concerns cohesion Member States.

Labour Productivity During the Great Depression and the Great Recession in UK Engineering and Metal Manufacture

This paper compares labour productivity during the Great Depression (GD) and the Great Recession (GR) in engineering, metal working and allied industries. Throughout, it distinguishes between output per worker and output per hour. From the peak-to-trough of the GD cycle, hourly labour productivity was countercyclical, remaining above its 1929 starting point. In the GR peak-to-trough period, hourly productivity was procyclical, falling below its 2007/08 starting point. While employment and average weekly hours reductions were much more pronounced in the GD compared to the GR, the GD recovery was both stronger and more sustained. The discussion of the different experiences in the two eras concentrates on employment and hours flexibility, the comparative lengths of weekly hours, the behaviour of real wages, and human capital aspects of labour inputs.

An Efficiency Wage—Imperfect Information Model of the Phillips Curve

This study develops an efficiency wage model in which workers have imperfect information about wages elsewhere. Firms’ profit-maximizing behavior results in a Phillips curve relationship. Three types of Phillips curves are derived: a wage-wage Phillips curve, a wage-price Phillips curve, and a price-price Phillips curve. The wage-wage Phillips curve is a reduced form relationship with the coefficient on lagged wage inflation equaling 1. To obtain the wage-price and the price-price Phillips curves, stochastic shocks to the growth rate of demand are modeled, yielding expressions over time for wage inflation, price inflation, and unemployment. These expressions are used in a regression of current wage or price inflation on unemployment and lagged price inflation, and it is demonstrated that the coefficient on lagged inflation asymptotically approaches 1. In addition, the model predicts that real wages are strictly procyclical in response to technology shocks, but can be either procyclical, acyclical, or countercyclical in response to demand shocks. Thus, this study can explain why economists have reached different conclusions about the cyclical behavior of real wages.

The Real Wage Cyclicality of Newly Hired and Incumbent Workers in Germany

Several recent macroeconomic models assume that real wages are rigid. The wage rigidity of newly hired workers assumes a crucial role in these models, as the decision of whether to open a vacancy is primarily influenced by real hiring wages. This article analyses the cyclical behaviour of real wages in Germany. It considers recent concerns that not controlling for cyclical job up and downgrading leads to biased results. The results indicate that wages are not rigid – neither for all workers nor for newly hired workers – but instead respond considerably to business cycle conditions.

Real wages and monetary policy: a DSGE approach

Purpose – Studies of the cyclical behavior of real wages have identified monetary shocks and examined the response of real wages and output or employment. A finding that real wages are procyclical in response to a positive monetary policy shock is taken as evidence that prices are stickier than wages. The purpose of this paper is to show that factors other than wage and price stickiness affect the response of real wages to a monetary policy shock. Design/methodology/approach – The authors simulate two prominent dynamic stochastic general equilibrium models under a variety of parameter values and examine the cyclicality of the real wage. Findings – The authors offer robust evidence that the real wage response to monetary policy is affected in important ways by properties of the economy other than stickiness of wages and prices, such as the importance of intermediate goods in the production process and the size of key elasticities. Consequently, the authors cannot appropriately infer the relative stickiness of wages and prices from examining only the response of real wages to a monetary policy shock. Originality/value – The authors show in this study that examining the response of real wages is not enough to sort out the relative stickiness of prices and wages.

Cyclical behavior of real wages in Japan

This paper studies the cyclicality of aggregate real wages in Japan. By using both static and dynamic approaches, I measure comovements between real wages and business cycle indicators. This paper finds that while real wages constructed using the consumer price index and the GDP deflator are procyclical, real wages constructed using the producer price index are countercyclical. This result is robust to the data and methods used to compute the comovements.

Real Wages in the Manufacturing Industry in Macedonia: The Role of Macroeconomic Factors, with Reference to Recession Times

In this paper we analyze the determinants of real wages in Macedonia’s manufacturing sector. We emphasize the macroeconomic aspects involved, and use econometric panel data techniques to model the behaviour of real wages for the period 2005-2010, using monthly data. We find non-negligible persistence of real wages. We further find a role for overall unemployment, real exchange rate and the tariff index in determining real wages.

Real wages and the business cycle in Germany

This article establishes stylized facts about the cyclicality of real consumer wages and real producer wages in Germany. As detrending methods, we apply the Beveridge–Nelson decomposition, the Hodrick–Prescott filter, the Baxter–King filter, and the structural time series model. The detrended data are analyzed both in the time domain and in the frequency domain. The great advantage of an analysis in the frequency domain is that it allows to assess the relative importance of particular frequencies for the behavior of real wages. We propose to use the phase angle as a suitable measure to get detailed information about the correlation and the lead–lag behavior of real wages relative to GDP at different frequencies. In the time domain, we find that both real wages display a procyclical pattern and lag behind the business cycle. In the frequency domain, the consumer real wage lags behind the business cycle and shows an anticyclical behavior for shorter time periods, whereas for longer time spans a procyclical behavior can be observed. For the producer real wage, however, the results in the frequency domain remain inconclusive.

Real Wages and Monetary Policy: A DSGE Approach

Economists have long investigated the cyclical behavior of real wages in order to draw inferences regarding the relative stickiness of prices and wages. Recent studies have adopted techniques intended to identify monetary shocks and examined the response of real wages and output or employment to such shocks. A finding that real wages are procyclical in response to a positive monetary policy shock, for example, is taken as evidence that prices are stickier than wages. In this paper, we show that factors other than wage and price stickiness affect the response of real wages to a monetary policy shock. Accordingly, examining the response of real wages is not enough to sort out the relative stickiness of prices and wages. We use two prominent DSGE models to help us address this issue. These models incorporate both sticky wages and prices but in different ways. The first model (Huang, Liu, and Phaneuf, American Economic Review, 2004) is relatively simple and is not intended for policy analysis. Its relative simplicity allows us to approach the issues both analytically and through simulations. The second model (Smets and Wouters, American Economic Review, 2007) is a relatively complex model of the U.S. economy with many frictions and intended to be useful for policy analysis. Because of its complexity, we must rely principally on simulation exercises. Using these models we offer robust evidence that the real wage response to monetary policy is affected in important ways by properties of the economy other than stickiness of wages and prices, such as the importance of intermediate goods in the production process and the size of key elasticities. Consequently, we cannot appropriately infer the relative stickiness of wages and prices from examining only the response of real wages to a monetary policy shock.

Real wage cyclicality in urban China

This paper investigates the cyclical behaviour of real wages in urban China. We find wage pro-cyclicality in the public sector and in small/medium firms, but not in the private sector and in big firms.

Non-Linear Dynamics of Real Wages Over the Business Cycle

This paper aims at analysing the dynamic properties of real wages over the business cycle. We apply a Bayesian vector autoregressive (BVAR) model and analyse the possible asymmetric behaviour of real wages in response to different macroeconomic shocks. Finally, we use the NBER business cycle periodisation to evaluate how real wages interact with the different shocks during contractions and booms. The results indicate that real wages cyclicality substantially depends on the driving forces of business cycle fluctuations. Different time periods are dominated by different types of shocks. When the business cycle is mainly driven by supply-side shocks real wages present a pro-cyclical behaviour. On the contrary, when the business cycle is driven by aggregate demand shocks real wages move counter-cyclically.

Real Wages, Working Time and the Great Depression

We have assembled two British data sets to re-examine the behaviour of real wages over the 1927-1937 cycle that contained the Great Depression. Both provide a degree of micro detail that greatly exceeds previous studies. The first consists of annual wages for 36 manufacturing industries. The second is based on blue-collar workers’ company payroll data within engineering and metal working firms. It allows us to distinguish between pieceworkers and timeworkers, 14 occupations and 51 travel-to-work geographical districts. We measure the cycle using national unemployment rates as well as rates that match our industrial and district breakdowns. The roles of standard and overtime hours are found to be crucial to the behaviour of real pay during the Depression. Real weekly earnings of both timeworkers and pieceworkers are strongly procyclical. Real hourly earnings of pieceworkers, who comprise over half of the engineering workforce, are also significantly procyclical. Timeworkers’ hourly wages are relatively unresponsive to the cycle. Annual wage measures are, at best, very weakly procyclical.

The Cyclical Behaviour of Real Wages: Evidence from Australia

This paper analyses the behaviour of real wages over the business cycle for Australia, using quarterly observations for the period 1984 : 1–2008 : 2. The unobserved cyclical components of prices, real wages, and three other cyclical variables are extracted from the observed time series using Harvey′s (1985, 1989) structural time series model. A model relating these components is estimated, producing results which show that both prices and real wages are procyclical.

Real Wages and the Business Cycle in Germany

This paper establishes stylized facts about the cyclicality of real consumer wages and real producer wages in Germany. As detrending methods we apply the deterministic trend model, the Beveridge-Nelson decomposition, the Hodrick-Prescott filter, the Baxter-King filter and the structural time series model. The detrended data are analyzed both in the time domain and in the frequency domain. The great advantage of an analysis in the frequency domain is that it allows to assess the relative importance of particular frequencies for the behavior of real wages. In the time domain we find that both real wages display a procyclical pattern and lag behind the business cycle. In the frequency domain the consumer real wage lags behind the business cycle and shows an anticyclical behavior for shorter time periods, whereas for longer time spans a procyclical behavior can be observed. However, for the producer real wage the results in the frequency domain remain inconclusive.

Équilibre général stochastique et dynamique non-walrasienne du marché du travail

This article seeks to assess the contribution of a non-Walrasian model of the labor market to an analysis of economic dynamics. We begin by discussing our model’s capacity to reproduce a labor volatility comparable to that of GDP , a lesser volatility of real wages, and the acyclical behavior of real wages. We show that the real rigidities introduced by the matching process, combined with a particular specification of bargained wages, enable us to make a wholly satisfactory description of these observed labor-market properties. After this empirical validation, we use the model to quantify the impact of a policy to combat unemployment. We examine the introduction of hiring subsidies to firms. We show that a labor tax has a lower social cost than a capital-tax adjustment as a means of financing this measure.

Workers' Flows and Real Wage Cyclicality

This study investigates real wage cyclicality in Portugal for the years of 1986-98, addressing the heterogeneity in wages responses to aggregate labor market conditions for workers’ hirings and separations. The results exhibit a moderate procyclical behavior of real wages for continuously employed workers, in particular, for job stayers. For workers’ accessions a strongly procyclical behavior in wages was observed, which is consistent with the idea that entry wages are much more procyclical than current wages. This empirical evidence suggests that even micro-data estimates of real wage cyclicality may conceal a strong procyclical wage behavior, when heterogeneity on wages responses to aggregate conditions between employed workers and hirings and separations is not taken into account.

Manufacturing real wages in Mexico

In this paper we analyse the recent evolution and determinants of real wages in Mexico’s manufacturing sector, using theories based on the assumption of imperfect competition both in the product and in the labour markets, especially wage-bargain theory, insider-outsider and mark-up models. We show evidence that the Mexican labour market does not behave as a traditional competitive market. The proposed explanation for this fact is that some workers benefit from advantages when compared with others, so that they can get a greater share of the proceedings of the productive process. Also, we find that changes in the degree of competition in the market for output influence the behaviour of real wages.

High and low frequency variations and the cyclical behaviour of real wages

The conflicting empirical evidence on the cyclicality of real wages may be a result of the fact that the measure of comovements employed in the literature is affected by coherence among non-business cycle variations in the data. By recursively removing components the degree to which long- and short-term cycles contaminate the existing evidence is studied. While confirming many of the results of the current literature, it is found that evidence of cyclicality is affected more by long rather than by short-term components, even though the data have been detrended by a number of different methods. It has been suggested in the literature that wages become more countercyclical as the deflators used represent less finished bundles of goods. This study shows that this result is robust to the removal of components from either end of the spectrum.

Why Does the Cyclical Behavior of Real Wages Change Over Time?

The cyclical behavior of real wages has evolved from mildly countercyclical during the interwar period to modestly procyclical in the postwar era. This paper presents a general-equilibrium business-cycle model that helps explain the evolution. In the model, changes in the real wage cyclicality arise from interactions between nominal wage and price rigidities and an evolving input-output structure.

A cross‐country comparison of the cyclicality of real wages

Abstract. This paper contains the first cross‐country comparison of the cyclical behaviour of real wages using microdata. After controlling for changes in labour quality, I find that real wages are strongly procyclical in Canada, the United Kingdom, and the United States. In contrast, the cyclicality of government‐published real aggregate hourly wages varies substantially across these three countries. The disparity suggests that a direct comparison of the cyclical behaviour of real aggregate wages is misleading. Finally, I show that variations in labour quality also bias the cross‐country correlation of several key labour market variables. JEL classification: J3, E3Une comparaison transversale entre pays du caractère cyclique des salaires réels. Ce mémoire présente la première comparaison entre pays du comportement cyclique des salaires réels à l’aide de micro‐données. Après normalisation pour tenir compte des changements dans la qualité du travail, cette étude montre que les salaires réels sont pro‐cycliques au Canada, au Royaume‐Uni et aux Etats Unis. Au contraire, le caractère cyclique des données sur les salaires horaires agrégés varie substantiellement entre ces trois pays. Cette disparité suggère qu’une comparaison directe du comportement cyclique des salaires réels agrégés peut être trompeuse. Finalement, cette étude montre que les variations dans la qualité du travail biaisent aussi les corrélations entre pays de plusieurs variables du marché du travail.